UK-EU 'reach tentative deal on financial services'

A tentative agreement has been reached between the UK and EU, based on 'equivalence' terms that would mean UK firms would have to conform to EU financial regulations.

David Sapsted

1 November 2018

The UK government is on the verge of reaching a deal with the EU to allow British financial services continued access to European markets after Brexit, according to press reports on Thursday.The tentative agreement, first reported by The Times and later by Reuters news agency, would be based on 'equivalence' arrangements, which would mean UK firms having to conform to EU financial regulations.When Prime Minister Theresa May first suggested such an arrangement in July, it received a frosty reception from City lobby groups, not least because the EU can scrap any equivalence deal with just 30 days' notice.However, there was speculation on Thursday that the government might be on the verge of agreeing an 'equivalence-plus' arrangement that could remove such uncertainty.Either way, sources in the City of London said any sort of equivalence arrangement was unlikely to alter banks' and others financial services' minds about establishing new European hubs outside London and relocating jobs and personnel from the UK.The problem stems from the fact that, after Brexit, the UK will lose the 'passporting' rights that currently give the City unfettered access to European markets.

According to The Times, equivalence would be extended and fall under the governance of a wider trade treaty, allowing the EU and the UK to change or set new financial regulations after consulting each other beforehand.“Under the services deal, the EU would guarantee UK companies access to European markets as long as British financial regulation remained broadly aligned with that of Europe,” The Times said.“Neither side would unilaterally deny market access without first going through independent arbitration and providing a notice period significantly longer than the current 30 days."Responding to the report, a government spokesman in London said, "While we continue to make good progress agreeing new arrangements for financial services, negotiations are ongoing and nothing is agreed until everything is agreed."The financial sector had been hoping a deal could be reached based on mutual recognition of EU and UK regulations. Earlier this year, London law firm Hogan Lovells looked at the pros and cons of equivalence on behalf of TheCityUK trade body and concluded that it did not "provide a long-term, sustainable solution".But Thomas Moore, investment director of UK equities at Aberdeen Standard Investments, told the BBC Radio 4's Today programme on Thursday that, assuming the equivalence deal reports were correct, the development was "on balance, positive", adding that such an agreement on equivalence "produced much greater certainty, not just for financial companies".Bloomberg commented, "Initially, the banks hoped to keep their so-called passporting rights to continue selling their products and services throughout the European Union after Brexit."Once that prospect dimmed, they hoped at least for 'mutual recognition' by the UK and EU of each other’s regulations, which would have allowed the London-based banks to keep serving the EU with minimal disruption."To the EU, both passporting and mutual recognition looked like 'cherry picking' - the UK trying to benefit from the good bits of being in the bloc without putting up with the obligations of membership. The UK’s shift reflected its understanding that, post-Brexit, the EU isn’t going to allow British banks to continue operating as they have."Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online DirectorySubscribe to Relocate Extra, our monthly newsletter, to get all of the international assignments and global mobility news.